As gold duty climbs, industry bets on recycling and monetisation

Bengaluru: With the Centre raising customs duties on gold and silver to curb purchases and reduce imports in a bid to conserve foreign exchange reserves, the bullion industry expects demand for precious metals to weaken and fears a rise in smuggling. At the same time, the sector is calling for a revamp of the Gold Monetisation Scheme (GMS) and other supportive measures to shield the industry from potential aftershocks.

The new effective import duty on gold and silver stands at 15%, comprising a 10% basic customs duty and a 5% Agriculture Infrastructure and Development Cess (AIDC). This reverses the tariff reduction from mid-2024, when duties had been cut to 6% to boost the domestic gems and jewellery industry and curb smuggling. India had similarly raised gold import duty to 15% in 2022 to check the current account deficit amid a falling rupee triggered by the Russia-Ukraine war.

India’s gold imports surged more than 24% to an all-time high of $71.98 billion in FY26, straining forex reserves. The CAD widened from 0.2% of GDP in Q1 FY26 to 1.3% in Q3 FY26, while the trade deficit rose to $93.6 billion. The rupee also hit a record low of Rs 95.63 against the US dollar. “The duty hike — reinstating the 2022 tariff level — is the government’s bluntest tool to curb non-essential dollar outflows,” said Renisha Chainani, Head of Research at Augmont.

Chainani added that the higher duty is expected to raise domestic premiums and soften jewellery demand, especially with gold prices already elevated. Demand for gold coins and ETFs could also moderate, while retail jewellery prices may rise another 8-10%. “Families could postpone jewellery purchases, especially for non-urgent occasions, and consumers may increasingly exchange old jewellery for new designs rather than making fresh purchases. Domestic sales volumes could fall 10-15% in H1 FY27,” she added.

The World Gold Council estimates that every 1% rise in import duty reduces consumer gold demand by around 6.4 tonnes, implying that the latest hike could suppress demand by nearly 57 tonnes annually. “Higher import duties could also revive gold smuggling, which had eased substantially after the 2024 duty reduction,” Chainani said.

“The hike in customs duty on gold is expected to make the metal more expensive for consumers, thereby reducing demand for physical gold in India,” said Deveya Gaglani, Senior Research Analyst — Commodities, Axis Direct. “We estimate the increase in duty to 15% could result in a 10-12% decline in official gold import volumes, as consumers may increasingly turn to recycling old gold or investing in paper gold.”

The price impact has already been sharp. According to Kabir Kate, CMO of Solitario, gold prices in Delhi jumped Rs 1,500 to Rs 1,56,800 per 10 grams on the day the duty came into effect, while silver prices surged Rs 12,000 to Rs 2,77,000 per kg. He added that the cumulative burden of customs duty, GST and cess would now make gold costlier by about Rs 27,000 per 10 grams, compared to Rs 13,500 earlier.

Accordingly, industry players are pushing for measures to monetise idle gold holdings. India imports 700-800 tonnes of gold annually even as households and institutions are estimated to hold 25,000-35,000 tonnes in jewellery, coins and bars.

Malabar Gold Chairman MP Ahammad said India possesses one of the world’s largest privately-held gold reserves, while continuing to rely heavily on imports, adding that responsible utilisation, recycling and circulation of existing gold should become a national priority.

The Gem and Jewellery Export Promotion Council (GJEPC) has also urged the government to promote lower-carat jewellery, encourage exchange of old gold for new jewellery, and revamp the GMS.

“Our consistent position is that hiking import duties rarely curbs gold imports — it merely inflates prices. Such measures often fuel smuggling and escalate export costs,” said GJEPC Chairman Kirit Bhansali, warning that MSME manufacturers would face the severest impact because of liquidity stress.